Deputy Commissioner John Taleo has told Pacific Beat the ferry was overloaded and took only a minute to sink to a depth of 350 metres, early in the morning.

A major rescue operation saved 37 people but four were trapped underneath the barge, named 'MCY'.

Police say the bodies of two females have been recovered but a 10 month-old baby and a crew member remain missing.

Police divers say the bodies of the missing will remain onboard as the ferry is now too deep to recover them.

Mr Taleo says charges, including of negligence, will be laid both against the owners of the ship as well as the Ports and Harbour Authority inspectors who issued a seaworthy certificate.

Ferry not seaworthy

He says police have been informed that before the vessel left Malekula it had been having repairs for a hole in the body of the ship.

"The boat is not seaworthy to transport passengers and even to deliver services to the islands of the Republic of Vanuatu," Mr Taleo said.

He says the main reason the boat capsized is because there was a hole in the bottom of the hull.

Mr Taleo says the ferry was also overloaded with 6,000 litres of fuel, copra, packs of kava and other cargo.

"The carrying capacity of passengers is only 30, but they overloaded it with 41 passengers, including crew as well on board," he said.

The ferry was travelling from Malekula to the capital, Port Vila, when it capsized, around 3.5 kilometres from Mangaliliu village, north of Efate island.

Some hours before, its engines had apparently failed several kilometres out at sea.

"[This is] a classic example for other trading vessels operating in Vanuatu, so that is a big lesson learned," Mr Taleo said.

"And we will carry out an investigation and also we will sack the authority, especially the Ports and Harbour Authority who granted the vessel a seaworthy [certificate] to operate in the waters of Vanuatu."

Poor communication on board

Mr Taleo says the barge had no proper equipment including radio on board.

He says the crew had to resort to using mobile phones to contact other ships rather than using a special radio channel to make distress calls.

"A mayday distress was not conducted on board on channel 16 on radio," Mr Taleo said.

"It only [called] the Vila central police station on a free toll line by using one of the passengers' mobile phone."

Rescue efforts

The director of Vanuatu's National Disaster Management Office, Shadrach Welegtabit, says the circumstances of the accident are still unclear but he says the ferry sank several hours after the engines failed.

"We sent out a rescue vessel and picked up 37 passengers plus crew," he said.

"Police have commandeered one of the other inter-island ferries, which has gone to bring back those that have been rescued and divers are being dispatched to search for those that are still missing," he said.

Vanuatu Police Force used the 'Big Sista' commercial ferry, which normally transports tourists and locals in the area, to rescue passengers.

All the people who were rescued have been taken to Port Vila.

Mr Welegtabit says the investigation is still ongoing to confirm what happened in what was a routine journey in ordinary weather conditions.

"It's not really rough but we have some south-easterly winds blowing," he said.

"Conditions are still okay for smaller boats.

"We did deploy smaller boats to go and do a search and rescue, and several boats were deployed on the north part of the island."

Vanuatu is comprised of more than 80 islands, more than 60 of which are inhabited - meaning inter-island ferries are a major means of transportation across the archipelago.